FCA Chief Warns Banks About AI Risks And Big Tech Threat

Nikhil Rathi, who is in charge of the FCA, has told banks that they need to spend more to fight the rise of AI and the danger of ‘deep fake’ fraud.

In a speech he will give on Wednesday, Rathi will talk about how the financial sector can be more productive. He will also warn about the risks of using automatic trading robots in financial markets and the bad results that can come from using biased datasets.

“The use of AI can both benefit markets and can also cause imbalances and risks that affect the integrity, price discovery and transparency and fairness of markets if unleashed unfettered,” he says, warning bosses that they will be held accountable for decision taken by artificial intelligence bots at their firms.

There are also risks that come from AI’s ability to imitate words, sound, and video.

Rathi points to a “deepfake” video of well-known personal finance activist Martin Lewis allegedly selling risky investments.

“As AI is further adopted, the investment in fraud prevention and operational and cyber resilience will have to accelerate simultaneously,” he says. “We will take a robust line on this – full support for beneficial innovation alongside proportionate protections.”

Rathi also used the speech to ask for more feedback on the role of “Big Tech” companies as “gatekeepers” of data and the effects of the difference in how much data Big Tech companies and financial services companies share.

“We are also considering the risks that Big Tech may pose to operational resilience in payments, retail services and financial infrastructure,” he says. “And we are mindful of the risk that Big Tech could pose in manipulating consumer behavioural biases.”

Rathi is worried about how the power of Big Tech firms could affect how well the financial markets work.

“What does it mean for competition if Big Tech firms have access to unique and comprehensive data sets such as browsing data, biometrics and social media?” he asks. “Coupled with anonymised financial transaction data, over time this could result in a longitudinal data set that could not be rivalled by that held by a financial services firm and it will be a data set that could cover many countries and demographics.”

Rathi also talked about the work that the FCA, the Bank of England, and the Prudential Regulatory Authority are doing to set standards for how third-party providers, especially cloud providers, serve UK financial companies.

“As of 2020, nearly two thirds of UK firms used the same few cloud service providers,” he says. “We must be clear where responsibility lies when things go wrong. Principally this will be with the outsourcing firm, but we want to mitigate the potential systemic impact that could be triggered by a critical third party.”